Why all good spreads come to an end …

While reflecting on a rapid growth of LNG trade, Bloomberg published an article in early 2022 that accurately summed up recent years’ developments on the global gas market.

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In a short time, a ‘once-sleepy’ commodity has managed to attract the attention of most players, both international and local ones. Now it is obvious that 2022 will take a special place in this context.

You can feel the moment the regional market goes through this year, looking at how some gas flow patterns have changed amid unprecedented decrease in exports from Russia.

This month, France has started sending physical volumes to Germany, although plans to offer firm exit capacity at the Obergailbach point were rejected due to a lack of demand as recently as in 2019.

Or take for example, the Interconnector and BBL pipelines that have been running at full capacity in reverse mode throughout the whole injection season.

The drop in Russian gas flows resulted, among other things, in physical volumes stopped coming to Italy through Austria. Only recently, that supply route was one of the most stable across the continent.

Things changed in Q4 when Austria-bound nominatons at the Tarvisio/Arnoldstein point exceeded those for flows in the opposite direction, for the first since at least 2015. So far this autumn, total exports from Italy to the Austrian market zone have amounted to over 180 mcm, according to ENTSO-G.

With day-ahead prices falling far below month-ahead index for October, taking volumes under long-term contracts was no longer an option for Italian buyers.

And limited heating demand in Italy encouraged shippers to send more gas to Austria, which in contrast to the neighbouring country desperately needed gas to fill its storages. That was reflected in last month’s spreads between prompt prices on the VTPA and PSV hubs.

As the fullness level of Austrian underground facilities reached 93pc in early November (an increase of 13 percentage points in just one month), the spread between the VTPA day-ahead contract and its Italian counterpart switched from premium to discount.

But while supply concerns eased on the prompt end of the VTPA curve amid strong injections into the country’s storages, there is still much uncertainty on how the situation will develop in this winter’s coldest months. Watch the PSV-TTF quarter-ahead spread and, as they say, you can draw your own conclusions.

Source: Yakov Grabar